Houses in Detroit

randomshenans · 24 Jan 2014 at 13:18

So I've been reading a lot in the press at the moment and talking to a few people and I'm considering picking up a couple of houses in Detroit.

Bankrupt city as it may be, the house prices are at such a low that the risk for me seems very low.

I can get a property that is "managed" by a management company there, having had a refurb that I pay for, which is fair enough and either sit on it, or let the management company rent it out to make income back.

I'd either pay it outright, or as Swiss mortgage rates are so low, I'd get it on the Mrs' income over 2 years at a fixed rate of 2% and be paid off.

My investment would be c. 25k GBP at what I'm looking at.

A lot of these are being bought up in the hundreds (residential and commercial) by the Russians, Chinese and UAE at the moment and figure; if they drop in price even more, how far can they physically go? If they're worth $0 (which is impossible), I'd still have bricks and mortar of a house.

Anyone seen any of this? Been tempted themselves? I could sit on this for 10-20 years for all I cared! What do you think?

sports_brah · 24 Jan 2014 at 13:20

IIRC, there are taxes and various other ongoing costs associated with such houses.

Also, are you allowed to buy property in America if you are not a citizen?

Rroff · 24 Jan 2014 at 13:22

Bare in mind there are reasons why many of them are so low - i.e. the area they are in - theres definitely potential there with proper research however.

EDIT: Also a lot of them aren't proper bricks and mortar houses - a lot of housing in the US is pretty flimsy and cheap build compared to most stuff in the UK.

86JR · 24 Jan 2014 at 13:23

Risky, lots of crime, Russians who tend to buy property in the hundreds tend to be Mafia, owning 2 properties on a street full of mafia controlled houses can only lead to one thing...hostile takeover.

Then you have the people in the areas where the housing is this cheap... ever watched 8 Mile?

Wouldn't touch it with a bargepole. But what do I know?

Tunney · 24 Jan 2014 at 13:23

I'd be worried that Detroit's economy and population are never going to recover. The population peaked at 1.8 million and it's currently down to 700,000. There would have to be some kind of miracle to get back to those highs within 10-20 years. Unless you buy somewhere central or already desirable then it's unlikely that you'll find tenants reliably.

randomshenans · 24 Jan 2014 at 13:24

sports_brah said:
IIRC, there are taxes and various other ongoing costs associated with such houses.

Also, are you allowed to buy property in America if you are not a citizen?

Taxes and management fees work out to about $2000 pa on a property of the aforementioned value. I can purchase as a non US citizen too.

Suarez7 · 24 Jan 2014 at 13:24

Detroit, not even once.

matt_fsr · 24 Jan 2014 at 13:25

Well seeing as half the rest of the world is at it, it looks like you can buy if you're not a citizen!

Problem is, you actually may be flushing your money down the loo. It's a gamble, and as with most gambles, only gamble what you can afford to lose.

What if the houses get squatters in? Or burned down / looted / smashed up? Yes, you're insured. And the insurers will undervalue the property massively, and pay you out almost nothing, knowing you aren't in a position to mount a legal challenge.

randomshenans · 24 Jan 2014 at 13:26

86JR said:
Risky, lots of crime, Russians who tend to buy property in the hundreds tend to be Mafia, owning 2 properties on a street full of mafia controlled houses can only lead to one thing...hostile takeover.

Then you have the people in the areas where the housing is this cheap... ever watched 8 Mile?

Wouldn't touch it with a bargepole. But what do I know?

LOL hostile takeover by the mafia? You're on something. Do you know that the Russians own a vast amount of the French Alps? Courchevel for one is mostly Russian owned. It's like mafia wars out there too... :/

Theophany · 24 Jan 2014 at 13:28

I think that the £25k could be better invested.

randomshenans · 24 Jan 2014 at 13:29

Tunney said:
I'd be worried that Detroit's economy and population are never going to recover. The population peaked at 1.8 million and it's currently down to 700,000. There would have to be some kind of miracle to get back to those highs within 10-20 years. Unless you buy somewhere central or already desirable then it's unlikely that you'll find tenants reliably.

That is the risk, that the population and the town never does recover. That's something we kind of think is worst case, it's written off and moved on. But having researched about projects there and they still plan on building a new 400mil stadium for the football team (funded outside) but pushing jobs for the site and jobs for running it there. Telado is 25miles away or something, where the Chinese are building a full on development too.

Tenant reliability is something I'd hope that the management company would deal with. I'd hope... ha

Caged · 24 Jan 2014 at 13:29

I think the only winners here are the management company who are going to take an ongoing fee and a cut of the refit costs.

Rroff · 24 Jan 2014 at 13:30

randomshenans said:
LOL hostile takeover by the mafia? You're on something. Do you know that the Russians own a vast amount of the French Alps? Courchevel for one is mostly Russian owned. It's like mafia wars out there too... :/

In the context of Detroit hes probably not so far off the mark. I don't know the ins and outs of the area like someone who lives or works there but for instance Ann Arbor is a pretty popular college town so property that way would potentially be more of an investment than many areas.

v0n · 24 Jan 2014 at 13:30

I suppose, realistically, it's still large-ish city and if you buy ground, rather than property standing on it per se, in the middle of the city, it will always be centre of the city. It's not like Detroit will move on to another town, sooner or later there will be redevelopment and your private ground will be in the middle of it, pushing the price up. Might take decades, but it will happen.

What I'd read upon is their real estate laws, for example if city hall decide to redevelop the area can they issue equivalent of our compulsory purchase order and dictate the price or would it have to be on your terms?

boxman2000 · 24 Jan 2014 at 13:30

I would do your homework on several things:

1) Suisse mortgage in US property. A lot of non-US lenders won't lend for anything that resembles USA on it!

2a) Currency exposure. I doubt a bank would be particularly pleased with this currency exposure.

2b) Currency exposure. House value can go up as the neighbourhood improves or further investment into the area but exchange rates could wipe your entire profits out.

3) Is this near a college? i.e. could you convert this into student accommodation where you would have a short-medium term tennants (1-4 years?) and tend to have money to pay from the bank of ma and pa.

4) What sort of returns has the letting agent come back with? Bank interest in the US is basically nothing so collecting rent needs to either sit in the USA (having a bank account over there is FUN to setup if you're not from USA!) or if rents are to be transferred to you then you will suffer bank charges and FX movements if you aren't keeping it in USD over here.

It's very risky and you need to be willing to lose the lot. Would the bank be ok to use the US property as security as the city alone would put me off having a legal charge (or whatever the US equivalent is) in using the property as collateral.

Given the possible 'sorts' of people buying cheap property up I wouldn't go near it personally. Look to invest in Canada or elsewhere. Croatia/Bosnia is an interesting one at the moment.

craptakular · 24 Jan 2014 at 13:31

Madness.

randomshenans · 24 Jan 2014 at 13:31

Rroff said:
Bare in mind there are reasons why many of them are so low - i.e. the area they are in - theres definitely potential there with proper research however.

EDIT: Also a lot of them aren't proper bricks and mortar houses - a lot of housing in the US is pretty flimsy and cheap build compared to most stuff in the UK.

Crime is a big one there, no bones about that. Regarding the houses though, there are some real bricks and mortar houses... let me find what I was looking at...

http://www.rightmove.co.uk/overseas-property/property-39712750.html

such as.

aardvark · 24 Jan 2014 at 13:31

i wouldn't say the risk is low - i would say the risk is very high that you will lose everything.

Glaucus · 24 Jan 2014 at 13:32

Bulgaria looks far more attractive, than a bankrupt city with no signs of it coming out. On the other hand Bulgaria is dirt cheap 25k would get several and as they are part of Europe its likely to see raise in wages and standards in the coming decades and thus land/house price rise.

From the 1st we can now buy(without setting up a company at €500), land but there's still no framework to actually do it. I hope when they do get the framework in place the prices haven't shifted. Would love to buy a Holliday home for a couple of k with a few aches, yeah not flash and run down.

No idea if you Swiss can mod you.

randomshenans · 24 Jan 2014 at 13:37

boxman2000 said:
I would do your homework on several things:

1) Suisse mortgage in US property. A lot of non-US lenders won't lend for anything that resembles USA on it!

2a) Currency exposure. I doubt a bank would be particularly pleased with this currency exposure.

2b) Currency exposure. House value can go up as the neighbourhood improves or further investment into the area but exchange rates could wipe your entire profits out.

3) Is this near a college? i.e. could you convert this into student accommodation where you would have a short-medium term tennants (1-4 years?) and tend to have money to pay from the bank of ma and pa.

4) What sort of returns has the letting agent come back with? Bank interest in the US is basically nothing so collecting rent needs to either sit in the USA (having a bank account over there is FUN to setup if you're not from USA!) or if rents are to be transferred to you then you will suffer bank charges and FX movements if you aren't keeping it in USD over here.

It's very risky and you need to be willing to lose the lot. Would the bank be ok to use the US property as security as the city alone would put me off having a legal charge (or whatever the US equivalent is) in using the property as collateral.

I'd have to talk to UBS about that. My current mortgage is on a EUR property, but in CHF due to the better rates and it's fixed at a 1.2% rate, so it won't fluctuate more than that, or if the exchange rate does, it won't for me. That is definitely something to find out there.

They talk a good game, the agents and come back with rental taking in to account costs and fees of a 30-40% per year. To be honest though, if it wasn't making an income, to sit on it wouldn't be the end of the world. It would come out the Mrs wages and we'd not really notice is going and paid off so quickly, it could then just sit there (with management) and hopefully in 20yrs be worth more.

God, it would be a huge risk, but I figured that a risk on 20k isn't really that bad if you still have a house at the end of it regardless of what it's worth. Yea, in detroit mind, but you know. Unlike shares, where you have no tangible asset.

Houses in Detroit

Thug